Did you ever wonder why you only received 998 USDC in exchange for 1000 USD on an exchange? Where did the 2 USDC or 0.2% of the transaction go to? Did the crypto gods take it as their rake? Well, the answer is quite simple. It is the fee charged by the exchange on which you made the transaction.
FEES play an integral role in cryptocurrencies - be it to incentivize the stakeholders in the consensus mechanism on the network or to generate revenue on crypto exchanges. In this article, we will focus on the exchange fees, more particularly the trading fees.
Trading fees are the fees charged by the cryptocurrency exchanges on every transaction (trade) made on its exchange. Depending on the (real) trade volume, even the slightest of the changes in the trading fees can add a huge number to the exchange’s bottom-line. To give an example, with less than 5% of the employees, Binance nearly made similar profit as NASDAQ in Q1 of 2018.
How are the Trading Fees Structured?
To incentivize people to trade on the exchanges, many exchanges use a system that involves a maker and a taker. An order that adds liquidity to the orderbook is considered a maker, and an order that removes liquidity from the orderbook is considered a taker. Exchanges usually charge lower fees for the makers in comparison to the takers. For illustration, the trading fee structure at Coinbase Pro is shown below:
How do the Trading Fees Compare among Exchanges?
In order to compare various exchanges based on trading fees, it is imperative that we understand how various exchanges base their tier-structure or levels for trading fee discounts. The four most popular tier structures are:
1. Trailing 30 days Trade Volume In exchanges that follow this model, the past 30 day trading volume is taken into consideration in order for trading fee rebates to be applicable. A popular example of such an exchange is BITTREX, and they mention the following on their website:
Your trading volume impacts the price you pay for each trade. Our fees are built to reward users who drive liquidity to Bittrex markets to ensure a healthy ecosystem. Your trading fees are reduced according to the USD value of your total volume traded by your account over the previous 30 days.
The fee structure on Bittrex is shown below:
2. Exchange Tokens Staked/Locked/held by the User A vast majority of the exchanges are currently following this model. The exchanges that have their in-house token require the users to either hold/stake/lock their in-house tokens to unlock tiered discounts on the trading fees. Exchanges like Binance, Huobi, Kucoin, and Mandala follow this model. Mandala Exchange’s tier-structure for trading fee discounts is shown below.
3. Single fee for all Users Exchanges like Uniswap fall under this category. They have a flat trading fee, and do not offer any trading fee discounts on their exchanges.
How do the Trading Fees Compare between Exchanges?
To maintain consistency, only the exchanges with a well-defined tier-structure for trading fee discounts are considered in this comparative analysis. Uniswap, though it doesn’t have a tier-structure for trading fee discounts, is included in this analysis to highlight the fact that it charges higher fees than a majority of the centralized exchanges. In this analysis, taker fees are considered to be the trading fees if an exchange offers different maker and taker fees. The reasoning behind this choice is that a vast majority of the retail customers act as takers. The following token prices are used in this analysis: 1 MDX Token = $0.03 (Mandala Exchange Token) 1 KCS Token = $1.20 (Kucoin Shares Token) 1 HT Token = $5.50 (Huobi Exchange Token)
These exchanges along with Uniswap are compared in the bar-graph below. In cases where the user doesn’t hold or stake or lock any of the exchange tokens, Kucoin is the cheapest when it comes to trading fees. However, in cases with more than $2400 worth tokens locked, Mandala Exchange, due to its lower trading fees, provides a distinct advantage to its users. Mandala Exchange outperforms both Coinbase Pro and Bittrex in terms of the trading fee it charges its users.
Why Mandala Exchange? Apart from its highly discounted trading fee tier-structure (as shown below), the following key features distinguish Mandala Exchange from the other exchanges:
Powered by Binance Cloud (First privately owned Exchange operating on Binance Cloud).
Industry-Leading Matching Engine.
Largest Liquidity Pool in the World.
Stable and CCXT Certified Trading API.
Regulated and Trusted Global Exchange.
Funds are insured through SAFU.
Taking into account the current cycle of retail investors entering the cryptosphere, acquiring MDX tokens will help them take advantage of not only the reduced trading fees they already provide, but the other utilities made possible by holding MDX and the truly explosive growth potential of the MDX token.
You can find more information about MDX token utility and the planned future utilities here.